An Archetype for Outsiders in Technology Commercialization
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AN ARCHETYPE FOR OUTSIDERS IN TECHNOLOGY COMMERCIALIZATION By Shane Greenstein Chapter for William Aspray, Historical Studies in Computing, Information, and Society: Insights from the Flatiron Lectures. (Springer history of computing series.) Springer Publishing; Cham, Switzerland. I. INTRODUCTION Many confrontations between insiders and outsiders have garnered attention in technology markets over several decades. What can we learn from these prominent confrontations? Is there anything common to them? This chapter presents an archetype of confrontations that highlights the distinctive perspective of an outsider. In this archetype insider refers to an established leading firm in a specific market, while outsiders are startups or historical non-participants in the insider’s market. The chapter interprets events as a conflict between the outsider’s novel point of view and the insider’s established point of view. To support this interpretation, the chapter examines numerous illustrations. In each, the outsider takes actions to gain customers, which leads to a reaction from the established firm. The archetype directs attention towards commercialization, the act of translating technical knowledge into valuable products and services, hereafter referred to as product(s). In this context valuable or value refers to market value, such as the price of a product and the profits of a firm, while commercialization is the less glamorous sibling to invention that translates inventions into value. Here the spotlight of inquiry focuses on the range of activities affiliated with designing the product’s attributes, as well as producing and distributing it – that is, offering it for sale, competing with others for buyer attention, and doing this at scale. Though outsiders and insiders differ in their points of view, they both must perform similar activities, namely, bringing their product to market. In both firms, management and employees must plan operations and distribution, execute those plans, and improve their execution by learning from experience. The archetype contains two broad stages— specifically, Entry for the first stage and Confrontation for the second. The first stage focuses on an entrant aspiring to confront the insider’s leading position. The entrant is an outsider, by definition, because it has adopted a distinctive point of view about how to create value around a certain product. In this chapter, we examine the differing points of view between insiders and outsiders regarding how their operations can support the marketing of the product to achieve success. During the entry phase the outsider goes through a period of “experimenting,” namely, developing a commercial approach along its point of view, resolving open questions about how to tailor its approach to technical limits, operational requirements, and features users find desirable. Its view may remain hidden or unrevealed to the insider for a time. Meanwhile, the insider has its own marketing strategy and point of view—sometimes not even foreseeing the potential for the product the insider is developing. The second stage, confrontation, focuses on the reaction of the insider. During this second stage, the established firm and the outsider both “experiment” in the marketplace (Rosenberg, 1992)—in the same sense as just described, plus a bit more. Each firm attempts to learn about open-ended questions regarding the value of features of demand, operations, and ways of organizing commercial actions. They also may imitate each other’s experiments, and learn from each other’s lessons. The archetype focuses attention on this competitive interplay between two rivals with distinct points of view, and emphasizes the links between that confrontation and the ways in which the confrontation emerges. Confrontations between insider and outsider are uninteresting when an entrants’ viewpoint leads to products that lack appeal with customers. Accordingly, the archetype spends its time analyzing situations where the outsider’s ideas do have some merit, and leads the outsider to confront the insider in the second stage. For similar reasons, in comparison to the outsider’s novel view, the archetype focuses on insiders who either (a) mis-estimate demand for major products that use the new technology, and/or (b) misunderstand how to employ new technology while supplying goods. In all cases, errors in estimating and understanding will go unappreciated by the insider until after the outsider enters the market with a distributed good. In this sense outsiders “surprise” insiders and their novel point of view generates competitive pressures, thereby motivating the insiders to act in ways they otherwise would not have. To overstate it somewhat, in the archetype outsiders are an agent of change, either by “unexpectedly” creating value for customers, and, relatedly, by motivating insiders to respond in ways that end up creating value. What factors contribute to generating healthy competitive interplay between outsider and insider? The first part of the chapter stresses the factors that ease entry, such as lower costs of specialization, the prevalence of open governance, and the gains and challenges of outsiders partnering with insiders. Perceptions of sclerotic behavior from an insider – due to organizational inertia or strategic paralysis or merely persistent misperception of opportunity – also makes the competitive situation more attractive for outsiders. The origins of the outsider also play a role in fostering surprise – whether the outsider comes from to the setting with experience from another market or a university, and whether it arrives as part of a wave of entrants. The next parts of the chapter offers an inductive approach to supporting the archetype. The discussion draws heavily on many known events. It features prominent firms, such as Microsoft, IBM, Britannica, Intel, Apple, Dell, and others, drawing from events that often receive some notice in the business news before disappearing into conversations inside organizational boundaries. This part of the discussion develops several themes around organizational inertia, examining the factors that lead insiders to imitate outsiders by quickly changing their plans (or not) and by quickly altering their investment priorities (or not). The discussion stresses the mechanisms that slow down response, and potentially misdirect in ways that reduce the seeming advantages of incumbency. The archetype is suited to recent events in technology markets in which dispersed technical leadership shapes supply conditions (See, e.g., Ozcan and Greenstein, 2018, Bresnahan and Greenstein, 1999). Many firms, both startups and established firms, have access to scientific knowledge, frontier technical tools, and essential engineering talent. Both rely on the same providers of servers, standardized software, and cloud contractors. Both employ commodity suppliers and contract manufacturers, and both get key inputs from contract labor for frontier programming. That reduces differences between outsiders and insiders, and facilitates entry by outsiders. The argument here is that different points of view about how to create value lead firms to approach the same opportunity with different operations and distinct competitive positions, leading to differentiated technological competition between entrants and established firms. The broad goal of the chapter is to establish the plausibility of that argument. The archetype has space for only so many comparisons. Why select these events for illustrating the archetype? First, the chapter focuses on important and recent events related to the determination of technological leadership in a market – i.e., determining which organization possess the largest market share and the frontier product designs. In addition, it is rare to have sufficient information to describe one firm’s point of view in any depth, even with the benefit of hindsight, and rarer still to make direct comparisons between two points of view at two different firms. The events in this chapter contain the depth necessary to support the analysis. These confrontations described in this chapter happen to have left publicly available records, and these provide insights about both points of view. That selection criterion raises the risk that some of these confrontations appear to be sui generis, and raises questions about their generality. That heightens the importance of demonstrating the match between the archetype and actual events, a point the chapter stresses. Said another way, because the chapter makes a “proof of concept,” it needs to address questions about the generalizability of the archetype. It necessarily cannot answer all such questions, and so, some attention in the conclusion will go to specifying the limits of the archetype. I.1. Contributions The point of departure for this chapter is a well-known theme in the history of computing. Many studies celebrate the primacy of “spinoffs” that arise from disagreements among managers at established firms. These disagreements lead experienced employees to leave and start their own firms. Among the most documented examples are the actions of the “Traitorous Eight” employees of Shockley Instruments, who left to begin Fairchild. These employees left both to escape Shockley’s managerial practices, and – often less emphasized in popular retellings – because the employees had come to a different point of view (than Shockley) about the best technical direction to pursue in manufacturing transistors (Thackray et al, 2015).